Swiss banks criticized for Venezuela money laundering breaches

Swiss regulator the Financial Market Supervisory Authority (FINMA) has reprimanded two banks for breaking money laundering rules during their dealings with Venezuelan entities.

Wrapping up a five-year investigation into 30 banks suspected of breaches relating to Venezuela’s state oil company PDVSA, FINMA has criticized Lugano-based Banca Zarattini and CBH Compagnie Bancaire Helvétique in Geneva. It previously reprimanded two former chief executives of private bank Julius Bär and investment bank Credit Suisse, for anti-corruption failings.

FINMA began investigating Banca Zarattini in August 2019 over possible violations of money laundering rules between 2014 and 2018, linked to Venezuelan oil company PDVSA. In February 2020, CBH came under the spotlight after FINMA received information about possible violations of anti-money laundering (AML) rules between 2012 and 2020, in connection with Venezuelan clients.

Both banks were found to be “in breach of obligations to combat money laundering and their duties to put in place an appropriate risk management policy, representing a serious infringement of supervisory law.”

They also failed to carry out sufficient economic background checks into business relationships and transactions with increased money laundering risks, and lacked adequate documentation, FINMA said.

It has imposed a temporary ban on Banca Zarattini accepting new Venezuelan and politically exposed people (PEPs) as clients. CBH Bank has been told to terminate any remaining business relationships with Venezuelan clients and review other risky client relationships.

It is thought that the cooperation of both banks before and during proceedings, and the implementation of new operating, structural and HR-related processes to remove AML deficiencies has helped mitigate the penalties imposed. However, FINMA says it will carry out checks at both banks to ensure effective implementation. 

Wider tensions between the EU and Venezuela 

In November 2017, the EU imposed sanctions on Venezuela over concerns of “the continuing deterioration of democracy, the rule of law and human rights.” It imposed an embargo on arms, travel bans, and asset freezes on individuals. In February 2021, 19 leading Venezuelan officials were added to its sanctions list – bringing the total number of individuals subject to sanctions to 55.

In March 2018, Switzerland imposed similar sanctions, while continuing to provide humanitarian aid to Venezuela and the surrounding region. In 2019, Swiss direct investment in Venezuela stood at CHF2 billion and Swiss companies employed about 2,700 people in the country. 

Switzerland’s censuring of five banks over dealings with Venezuela comes at a time when the US has seen several major AML events relating to Venezuela.

These include the conviction of AML expert Bruce Bagley, who helped launder over $2m meant for the poor in Venezuela, and the extradition to the US of Colombian businessman Alex Saab (known as a financial fixer for President Nicolás Maduro of Venezuela), who is accused of laundering $350m in illicit money – allegedly through Switzerland.

In January 2021,  the US Treasury’s Office of Foreign Assets Control (OFAC)  sanctioned three individuals, 14 entities, and six vessels for their ties to a network attempting to evade US sanctions on Venezuela’s oil sector.

Sanctioning Swissoil, based in Geneva, OFAC said it had participated in the scheme by assisting in the sale and shipping of Venezuelan-origin crude oil to buyers in Asia. 

“Swissoil was designated today for operating in the oil sector of the Venezuelan economy and because it has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of PDVSA,” OFAC said.

Takeaways for compliance teams

The Swiss regulator’s reprimands highlight the importance of regularly assessed, risk-based AML compliance programs as well as the reputational damage associated with sustained violations. Our State of Financial Crime 2021 survey showed that more than 60% of compliance teams frequently choose to incur AML fines and violations. The regulator’s focus on the reputational damage to these banks in this instance demonstrates the risk of compliance violations beyond monetary fines. 

For compliance teams, it underlines the need to screen against up-to-date sanctions lists, including the latest politically exposed person (PEP) data, which can change frequently, particularly in politically turbulent countries such as Venezuela. It also shows the importance of keeping abreast of sanctions implementations in other countries, as well as escalating geopolitical situations that could impact your firm further down the line.

Read more about global sanctions in our 2021 guide.